DEERFIELD, Ill. — At the end of this year, Walgreen Co. plans to stop filling prescriptions for people covered by Express Scripts Inc. after failing to agree on new contract terms with the pharmacy benefits manager.

Express Scripts prescriptions are expected to be worth an estimated $5.3 billion in sales for Walgreens in 2011.

“We’re prepared and ready to live in a world without Express Scripts,” Walgreens chief executive officer Greg Wasson said during a conference call with financial analysts.

Express Scripts said in a statement that it was “shocked” by Walgreens’ move and expressed hope the chain would return to the table. Barring a last-minute agreement, Express Scripts’ network would no longer include the 7,700 Walgreens pharmacies nationwide — including its more than 250 Duane Reade pharmacies in the New York City area — beginning next year.

“Under the terms proposed by Express Scripts, it would not make good business sense for the strategic direction of our company to continue our relationship with them,” Wasson said. “Walgreens is committed to providing quality, convenient and cost-effective pharmacy services, but we cannot continue to deliver these services under the terms and rates Express Scripts offered.”

Walgreens stated that Express Scripts “insisted on being able to unilaterally define contract terms, including what does and does not constitute a brand and generic drug,” a stance that the retailer said would have denied it the predictability necessary to reliably plan its business.

Express Scripts also wanted to cut reimbursement rates “to unacceptable levels below the industry average cost,” according to Walgreens. The chain proposed to lower rates on behalf of the Department of Defense (DoD) TRICARE program, a pharmacy benefit plan managed by Express Scripts, and offered to contract separately with Express Scripts for TRICARE beneficiaries to continue providing services for active and retired military personnel.

For all other plans managed by Express Scripts, Walgreens said it offered to hold rates for a new contract at the level that will be in effect with Express Scripts at the end of the year.
Express Scripts said it is open to continued negotiations.

“In these challenging economic times, it is critical that we all work together to keep medicines affordable and accessible,” Express Scripts’ chairman and CEO George Paz stated. “It is shocking to us that Walgreens would back away from the table with six months to go in the current agreement.”